an tSionna {06.03.14}

Today's chart is of the Powershares Preferred Stock ETF {PGX}.  I'm showing this to illustrate the effect of interest rates on fixed income assets like ETFs.  {BTW I'm long this ETF in both client and personal accounts although those positions can change at any time.}  Fixed income assets like PGX were some of the worst performing groups last year as they were hit by both rising interest rates and the  market's preference in 2013 for growth.  

The tables have turned so far in this year.  As rates have declined ETFs and other fixed income assets such as this have been bid up.  PGX is up 9.55% in 2014 beating the market's roughly 4% return.  There are two things to take away from this.  First is that probability and past performance strongly suggest that these will underperform when rates start to rise at a sustained rate.  Also it shows the benefits of having a diversified portfolio.  ETFs like PGX would have been a drag on performance in 2013 but they are anchoring the portfolios so far this year.  

Chart from Finviz.com.